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Disaster Assistance Self-Study - Payments/Benefits and Tax Returns

Taxable and Non-taxable Disaster Payments/Benefits

Post-disaster relief grants received under the Disaster Relief and Emergency Assistance Act are not includable in your income if the grant payments are made to help you meet your necessary expenses or serious needs for medical, dental, housing, personal property, transportation or funeral expenses. You may not deduct casualty losses or medical expenses that are specifically reimbursed by these disasters.

  1. Unemployment assistance payments under the Disaster Relief and Emergency Assistance Act are taxable unemployment compensation.
  2. You can exclude from income any amount you receive that is a qualified disaster relief payment. A qualified disaster relief payment is an amount paid to you:
    • To reimburse or pay reasonable and necessary personal, family, living, or funeral expenses that result from a qualified disaster.
    • To reimburse or pay reasonable and necessary expenses incurred for the repair or rehabilitation of your home or repair or replacement of its contents to the extent it is due to a qualified disaster.
    • By a person engaged in the furnishing or sale of transportation as a common carrier because of the death or personal physical injuries incurred as a result of a qualified disaster.
    • By a Federal, state, or local government or agency, or instrumentality in connection with a qualified disaster in order to promote the general welfare.

A qualified disaster is:

  • A disaster which results from a terrorist or military action.
  • A federally declared disaster.
  • A disaster which results from an accident involving a common carrier.
  • Any event, which is determined to be catastrophic by the Secretary of the Treasury or his or her delegate.
  • For more details on Disaster Relief Payments see Publication 547, Casualty, Disasters and Thefts, page 11.

Knowledge Check

Generally, which of the following is not a qualified disaster?

A. A disaster that results from a terrorist or military action.
B.  A federally declared disaster.
C.  A disaster resulting from an accident involving a common carrier.
D.  An accident involving a burst city water main.

Answer

Tax Returns - Replacement

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers who need them to apply for benefits or to file amended returns claiming casualty losses. You should instruct the taxpayer to put the assigned Disaster Designation in red ink at the top of Form 4506, (PDF) "Request for Copy of Tax Return," or Form 4506-T, (PDF) "Request for Transcript of Tax Return," as appropriate, and submit it to the IRS. These forms are in the disaster kits. The Disaster Designation will be provided in the Disaster Relief Guideline memorandum.

Tax Return - Form W-4

If the taxpayer intends to claim the casualty loss in the tax year that the disaster occurred, then disaster victims should consider increasing their take-home pay from wages by increasing their withholding allowances on Form W-4 (PDF).

The additional withholding allowances would be based on the deductible amount of casualty loss that is to be claimed on the current tax year. The additional take home pay helps to meet the additional expenses created by temporary housing, living and medical expenses, or amounts needed to repair or replace real or personal property.

Tax Return - Administrative Relief

The National Disaster Assistance Coordinator will issue a Disaster Relief Guideline Memorandum which sets forth any administrative disaster relief that has been granted for the disaster.

The memorandum will specify the disaster relief period for which extensions of time to file or pay have been granted. Taxpayers whose original or extended due dates to file returns, make payments, or take time sensitive actions that fall within the disaster relief period have until the last day of the disaster relief period to either file the return, make the tax payment or complete the appropriate time sensitive action.

Taxpayers who have ongoing examination or collection matters should explain how the disaster impacts them so that the IRS employee can provide appropriate consideration to their case.

Note: Interest relief does not apply to delinquencies incurred prior to the disaster.

The disaster assistance representative may contact the IRS directly or prepare Form 4442, Inquiry Referral on behalf of the taxpayer.

Tax Return - Extended Deadlines

Please check the IRS Disaster website for:

The FTD "penalty waiver" periods.

The "extension periods" for return filings and tax payments.

The identified "federally declared disaster" areas.

Knowledge Check

Post-disaster relief grants received under Disaster Relief and Emergency Assistance Act are not includable in your income if the grant payments are made to help you meet your necessary expenses. (True or False)

Answer

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Page Last Reviewed or Updated: 04-Aug-2014